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B2B Business Models

Business Information Systems > B2B Business Models Abstract
Information technology is not only revolutionizing the way that enterprises do business with consumers, but also the way that they do business with each other. In addition, many experts predict that business-to-business transactions will exceed those of business-to-consumer e-commerce. However, just as there are different business models for non-electronic businesses, there are also more than one model for business-to-business e-commerce. Two revolutionary new business models that have come out of this movement are the business-to-business e-commerce models of Dell and Cisco. However, these models are not appropriate for every organization. In addition to these new paradigms for individual firms, other changes in business-to-business e-commerce are occurring that are revolutionizing the traditional paradigms.

Overview
Traditionally, when one thinks of business paradigms, one of the first things that springs to mind is the concept of companies selling to consumers. The department chain store or the big box store down the street are prime examples of this business model. Historically, this meant that the business had a brick-and-mortar location where it employed its own personnel. Even with the advent of the Information Age, this model changed only slightly, with information technology being used to support the way that business was done by making standard operations more efficient. For example, manual cash registers have been replaced in most modern businesses by high tech models that keep track of various aspects of transactions including tender type (i.e., whether the transaction was cash, check, charge, etc.) and amount paid as well as inventory control information or other administrative data. Such automated information collection makes closing the store at night and balancing the books a much easier task and can also help store and chain managers to make decisions about the type of inventory to carry, new services that could be offered to customers, and demographics that can be used in marketing efforts. However, information technology not only allows organizations to perform various business processes more efficiently, in many cases it also allows them to reengineer organizational processes by improving the effectiveness and efficiency of the various processes within an organization. With advances in information systems, however, this model can now be taken a step further. Electronic business-to-consumer paradigms allow a business to market and sell directly to consumers. Examples of this business model include Amazon.com, (the online purveyor of books and a wide variety of other items) and Travelocity (the online travel agency) businesses that sell electronically directly to consumers. However, not all businesses sell directly to consumers, nor should they. Automobile parts manufacturers frequently sell to the automotive industry rather than to the car owner. Precious stones miners sell to the gem industry where the stones are cut and sold, in turn, to jewelers and suppliers who, in turn, sell to suppliers. Pharmaceutical companies sell to directly or indirectly to pharmacies and hospitals who sell the products to customers. As with business to consumer paradigms, the model of business-to-business (B2B) commerce has been revolutionized by advances in information technology and systems.

Table of Contents Abstract Keywords Overview Applications Conclusion Terms & Concepts Bibliography Suggested Reading

B2B Business Models Essay by Ruth A. Wienclaw, Ph.D. EBSCO Research Starters Copyright 2008 EBSCO Publishing Inc. All Rights Reserved Page 2

Despite the increasing popularity of business-to-consumer e-commerce with its ease of ordering and comparing items online, many experts predict that business-to-business transactions will exceed those of business-to-consumer e-commerce. This makes sense. For example, although a consumer may order a book over the Internet, the business from whom the book is purchased not only has to interact with the purchaser but also with the publisher who printed the book. The publisher, in turn, needs to interact with the paper and ink suppliers, the maintenance firm that keeps the printing presses running, the authors who submit their manuscripts online, and so forth. Business Models for Conducting B2B E-Commerce Just as there are different business models for non-electronic businesses, there is also more than one model for business-to-business e-commerce. In general, a business model is an organizations approach to doing business. Although there are many different business models available, most business models have several core concepts in common. At the level of the most basic business model, an organiza tion must have something of value to offer to the marketplace, whether it be goods, products, or services. A bookstore, for example, may offer books and magazines as well as various services such as special ordering. To be successful, the thing which the organization offers its customers needs to be of value something that the customer either wants or needs (or both). Another part of the business model is the customer the target market to whom the organization is trying to sell its offering. The business model needs to articulate how the business will gain, maintain, and foster relationship with customers. In order to get the product into the hands of the customer, the organization also needs an infrastructure in place. The infrastructure includes such things as having the right mix of people and skills necessary to produce the product as well as to run the business. This may include not only the people working directly for the organization, but partners as well who provide skills or services that that business does not provide for itself but that are necessary to get the product into the hands of the customer. This may include companies that provide complementary skills necessary to make the product (e.g., suppliers) as well as supply chain partners that provide raw materials, supplies, or components or that distribute, warehouse or sell finished products. The business model also needs to include consideration of the companys income and cash flow as well as its cost structure. Electronic Data Interchange & E-Commerce Models One of the outgrowths of information technology that has enabled the development of new business-to-business ecommerce models is electronic data interchange, a standard format used in exchanging business data such as price or product identification number. Electronic data interchange is a standard format that is used to exchange business data including price or product identification number. Electronic data interchange technology is particularly important for in international commerce where paperwork required for international trade creates costs that can be up to seven percent of the value of the items being traded. With electronic data interchange technology, on the other hand, shippers, carriers, customs agents, and customers all can send and receive documents electronically, thereby saving both time and money for international transactions. Advantages of E-Commerce for B2B Businesses As shown in Figure 1, the traditional business model for business-to-business operations involves a procurement staff that negotiates with various suppliers. For example, a bookstore may procure books from several distributors and office supplies from one or more other suppliers. In the e-commerce business model, a procurement staff (typically smaller than the staff necessary in the traditional business-to-business model) shops online for supplies and other items necessary to the business. Just as it does for the consumer in the business-to-consumer business model, the Internet allows businesses to comparison shop online in order to find the most appropriate product at the best price. This reduces many of the front-end costs for finding goods and products that are incurred in the traditional model.

Keywords Business Model Business Process Business-to-Business (B2B) E-Business Business-to-Consumer (B2C) E-Business E-Commerce Electronic Exchanges

Enterprise Hub Information System Information Technology Just-in-Time Manufacturing (JIT) Portal Target Market B2B Business Models Essay by Ruth A. Wienclaw, Ph.D. EBSCO Research Starters Copyright 2008
EBSCO Publishing Inc. All Rights Reserved Page 3

Figure 1: Business-to-Business Business Models (From Lucas, p. 52) Electronic Exchanges Another way that this can be done is through the use of electronic exchanges (also known as electronic markets or B2B hubs). These hubs are sites on the Internet where buyers and sellers can come together to exchange information and buy and sell products and services. As shown in Figure 2, electronic interchanges typically have one of three structures. Public Exchange In a public exchange (also known as an independent exchange), a third party market operates the electronic market, displays information, and provides the tools necessary to conduct e-business. Independent exchanges may be vertical (i.e., serving members of a specific industry) or horizontal (i.e., simultaneously serving businesses in different industries). Public exchanges are independently owned by the third party that displays the content and provides electronic tools for conducting business. Figure 2: Electronic Exchange Structures (Adapted from Senn, p.415) Consortia-backed Exchange The second general type of electronic exchange is the consortia-backed exchange. These are e-markets created by consortia of traditional firms within an industry who band together to create a common forum for business-tobusiness transactions of goods and services. One of the primary purposes of consortia-backed exchanges is to drive down costs for all participants. Private Exchange Another type of electronic exchange structure is the private exchanges. These exchanges are structured around the needs of a specific sponsoring business and its trading partners and can be joined by invitation only. There are several advantages to private exchanges over other types of electronic exchanges. First, the owners of these exchanges can regulate access to both buyers and sellers. This means that the owners have the ability to exclude competitors and their suppliers from the exchange so that the exchange only benefits its members. The owners of a private exchange can also offer pricing incentives or alternatives so that they can streamline business processes and benefit participants. In addition, as opposed to public exchanges, most private exchanges can be tailored to serve specific products.

Applications
For many years, the traditional mass manufacturing (or Fordist) model followed the principles of assembly line manufacture that revolutionized production when first implemented by Henry Ford. Certainly, the assembly line allowed products to be made more quickly and cheaply than ever before, but it did so at a price. Assembly lines are set up to produce masses of products that are all the same; custom options were at least in the beginning difficult to acquire. Even though the assembly line process improved over the years, it was not until the flexibility and power brought about by information technology that a true revolution of the manufacturing process occurred. The use of the Internet to facilitate business-to-business transactions promises reduced costs, better access to buyers and sellers, improved marketplace liquidity, and more efficient and flexible transaction methods. The Dell Business Model One of the business models for business-to-business operations that has been enabled by information technology is the Dell business model. As shown in Figure 3, in this model, orders for computers are placed with Dell by telephone or through the Internet. Through a process called just-in-time (or lean) manufacturing, waste is reduced and productivity improved by only having the required inventory on hand when it is actually needed for manufacturing. This reduces both lead times and set up times for building a computer. Under the just-in-time philosophy, Dell only orders the parts for a computer when it has a firm (and in the case of non-corporate orders, prepaid) order. As a result, Dell operates with little in-process and no finished goods inventory: Products are shipped as soon as they are manufactured. This approach also enables Dell to forego having brick and mortar store fronts with inventory that must be kept on the books or that might become obsolete, thereby significantly reducing overhead. In addition, items that are not built by Dell are shipped directly to the customer by the manufacturer. These features help Dell to reduce the costs of production and sales. Far from being inflex B2B Business Models Essay
by Ruth A. Wienclaw, Ph.D. EBSCO Research Starters Copyright 2008 EBSCO Publishing Inc. All Rights Reserved Page 4

ible, however, this process also allows Dell to custom design systems for its customer within certain parameters as well as to offer a range of items rather than a single system. Figure 3: The Dell Business Model (From Lucas, p. 53) The Cisco Business Model Another lean business-to-business model that has been enabled by information technology is the Cisco model (Figure 4). This successful network communications manufacturer receives approximately 90 percent of its orders over the Internet. The orders are routed to contract electronics manufacturers who build the products to Ciscos specifications. Not only are the majority of Ciscos orders received over the web, but 70 to 80 percent of their customer service requests are also dealt with online. Figure 4: The Cisco Business Model (From Lucas, p. 54) Other Business Model Innovations Although the business models used by Dell and Cisco have revolutionized the way that these and similar organizations do business over the Internet, these models are not appropriate for every organization. E-Hubs In addition to these new paradigms for individual firms, other changes in business-to-business e-commerce are occurring that change the traditional paradigms. Electronic hubs (also known as vertical portals) are business-tobusiness web sites that bring together buyers and sellers in a particular industry such as information technology or retail. These hubs facilitate business transactions within an industry and may charge a transaction fee for purchases. The value of hubs is that they reduce transaction costs by aggregating buyers and sellers in an electronic marketplace. As opposed to business-to-consumer hubs that are one-way networks that primarily create value for sellers, business-to-business hubs are two-way networks that mediate between buyers and sellers and create value for all parties. Business-to-business hubs create value in a number of ways including reducing search costs, standardizing systems, and improving matches for both buyers and sellers. Business-to-business hubs offer more choices to buyers and give sellers more access to buyers. For example, if five buyers and five sellers were potentially interested in doing business with each other, they would first have to locate each other. The sellers would have to determine who the potential buyers were through advertising or a direct sales force. The sellers would then have to make a contact with each potential buyer. This would involve 25 separate searches and 25 separate contacts each time a seller wanted to sell. With the hub system, however, this number is drastically reduced. The hub finds the potential sellers and buyers, reducing the total number of postings to ten: Five postings on the hub by the sellers and five views by the buyers. Hub systems also allow information such as credit checks, product descriptions, and evaluations to be transferred more easily. Vertical Hubs Vertical hubs are set up to specialize within an industry or other vertical market. They provide domain-specific content and relationships that are of value to their participants. Vertical hubs are particularly advantageous when there is much fragmentation among the buyers and sellers, and inefficiency in the existing supply chain. Vertical hubs that are successful tend to have a high degree of domain knowledge and industry relationships, create master catalogs and allow advanced search options. Examples of vertical hubs include Band-X for the telecommunications industry, Cattle Offerings Worldwide for the beef and dairy market, PlasticsNet.com for the plastics industry, and Ultraprise for secondary mortgage exchange. Functional Hubs Functional hubs, on the other hand, are horizontal hubs that provide the same functions across different industries rather than more functions within a single industry. Functional hubs are successful in situations where there is a greater degree of process standardization and sufficient knowledge about the processes and the ability to customize the business process to respond to differences in various industries. Examples of functional hubs include iMark which focuses on buying and selling used capital B2B Business Models Essay by Ruth A. Wienclaw, Ph.D. EBSCO Research
Starters Copyright 2008 EBSCO Publishing Inc. All Rights Reserved Page 5

equipment across industries, MRO.com for maintenance, repair, and operating procurement, Employease for employee benefits administration, and Youtilities for energy management. Systems for Improving B2B E-Commerce Business-to-business e-commerce is still in a state of flux as enterprises learn how to leverage information technology in general and the Internet in particular into systems that help them more efficiently and effectively do business. Observers are looking at several. First, to make business-to-business e-commerce worthwhile, systems need to evolve to handle not only simple transactions but complex ones as well. To facilitate this need, standards will need to be developed and put into place. In addition, as markets become more competitive, transac tion fees will most likely decrease or even disappear. Among other implications, this means that providers will need to shift from dealing in transactions to offering more comprehensive solutions to business needs. For example, products can be bundled with related information and services in an effort to forge customer loyalty and long-lasting relationships. New business-to-business models will continue to appear as technology continues to evolve and enterprises seek creative solutions. Among new business-to-business e-commerce models that are beginning to emerge are the mega exchange that maximizes liquidity and sets common transaction standards, the specialist originator that deals with complex and relatively expensive products, the e-speculator model that has a high degree of product standardization and moderate to high price volatility, the solution provider in which product costs are only a small portion of the overall costs, and the sell-side asset exchange with high fixed costs and a relatively fragmented supplier and customer base.

Conclusion
E-commerce and the information technology that enables it allow organizations to conduct business together in new ways. Two revolutionary new business models that have come out of this movement are the business-to-business ecommerce models of Dell and Cisco, which support lean manufacturing and improve transaction efficiency. In addition, new models for business-to-business e-commerce continue to evolve as enterprises find new and creative ways to do business with each other.

Terms & Concepts

Business Model: The paradigm under which an organization operates and does business in order to accomplish its goals. Business models include consideration of what the business offers of value to the marketplace, building and maintaining customer relationships, an infrastructure that allows the organization to produce its offering, and the income, cash flow, and cost structure of the organization. Business Process: Any of a number of linked activities that transforms an input into the organization into an output that is delivered to the customer. Business processes include management processes, operational processes (e.g., purchasing, manufacturing, marketing), and supporting processes, (accounting, human resources). Business-to-Business (B2B) E-Business: E-business in which a business markets and sells to other businesses. Business-to-Consumer (B2C) E-Business: E-business in which a business markets and sells directly to consumers. E-Commerce: E-commerce (i.e., electronic commerce) is the process of buying and selling goods or services including information products and information retrieval services electronically rather than through conventional means. E-commerce is typically conducted over the Internet. Electronic Exchanges: Sites on the Internet where buyers and sellers can come together to exchange information and buy and sell products and services. Enterprise: An organization that uses computers. Although this term is often applied to large organizations, the term can be applied to both small and large organizations. Hub: A business-to-business web site that brings together buyers and sellers in a particular industry. Web hubs may charge a transaction fee for purchases. Also known as a vertical portal. Information System: A system that facilitates the flow of information and data between people or departments. Information Technology: The use of computers, communications networks, and knowledge in the creation, storage, and dispersal of data and information. Information technology comprises a wide range of items and abilities for use in the creation, storage, and distribution of information. Just-in-Time Manufacturing (JIT): A manufacturing philosophy that strives to eliminate waste and continually improve productivity. The primary characteristics of JIT include having the required inventory only when it is needed for manufacturing and reducing lead times and set up times. Also called lean manufacturing. B2B Business
Models Essay by Ruth A. Wienclaw, Ph.D. EBSCO Research Starters Copyright 2008 EBSCO Publishing Inc. All Rights Reserved Page 6

Portal: A web site that acts as a point of access to the World Wide Web. Portal sites typically offer a search engine or catalog of web sites as well as other features. Target Market: The people or businesses to whom the entrepreneur wishes to sell goods or services.

Bibliography
Lucas, H. C. Jr. (2005). Information technology: Strategic decision making for managers. New York: John Wiley and Sons. Sawhney, M. & Kaplan, S. (1998). Lets get vertical. Imagine Media Inc. Retrieved September 25, 2007, from http://www.gwu.edu/~ibus266j/Global%20B2B/Copy%20of%20models-b2b.htm Senn, J. A. (2004). Information technology: Principles, practices, opportunities (3rd ed.). Upper Saddle River, NJ: Pearson/Prentice Hall. Wise, R. & Morrison, D. (2000). Beyond the exchange: The future of B2B. Harvard Business Review, 78(6), 86-96. Retrieved September 25, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=3712730&site=bsi-live

Suggested Reading
Huang, E. (2007). Entry to the e-commerce markets of China and Taiwan: An application of content analysis. International Journal of Management, 24(1), 82-91. Retrieved September 24, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25139349&site=bsilive McAfee, Andrew. (2000). The Napsterization of B2B. Harvard Business Review, 78(6), 18-19. Retrieved September 25, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=3712522&site=bsi-live Teschler, L. (2000). New role for b-to-b exchanges: Helping developers collaborate. Machine Design, 72(19), 52-57. Retrieved September 25, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=3646644&site=bsi-live Williams, D. (2007). Going from push to pull. Brand Strategy, 209, 36-37. Retrieved September 25, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24283270&site=bsi-live

Essay by Ruth A. Wienclaw, Ph.D.

Dr. Ruth A. Wienclaw holds a Doctorate in industrial/organizational psychology with a specialization in organization development from the University of Memphis. She is the owner of a small business that works with organizations in both the public and private sectors, consulting on matters of strategic planning, training, and human/systems integration.

B2B E-Commerce 12 basis of the posted price. Buyers identify suppliers from the website database and then consummate the transaction on or offline. If the transaction is online, then the website is a marketplace and collects revenues from some aspect of the transaction (see revenue sources section below). If the transaction is consummated offline, then the website is a bulletin board or community portal (Trepp, 2000). Stickiness is again an issue for this transaction model (Lessons from the Past, 1999). Catalog aggregation sites often feature sticky content or other features that attempt to retain the purchaser at the website (Trepp, 2000). Sticky features that could be introduced include members-only content, chat, or up to the minute industry news. Request for Quotes Model. In the traditional procurement process, a buyer sends out a Request for Quotes (RFQ) or Request for Proposals (RFP) to potential suppliers. These RFQs have detailed specifications and instructions regarding the type and quantity of the products requested, as well as other terms of sale. After suppliers submit competing offers, the buyer selects the winning offer (often, but not always) based on the lowest price and sends a purchase order to the winning vendor (Trepp, 2000). Many of these buyer-supplier relationships are long

established. However, in the case of new procurement contracts, the acquisition of new suppliers is an expensive and time-consuming process. In an Internet enabled RFQ process, the sourcing procedure is greatly enhanced. Using an Internet enabled RFQ platform, buyers can achieve a much wider reach, achieve more efficiency and lower the cost of supplier acquisition (Trepp, 2000). In addition, the Internet RFQ bidding process allows for reverse auction competitive bidding, thus lowering procurement costs for buyers. Competitive price discovery by suppliers during the RFQ bidding process could also potentially enhance this benefit to buyers. http://www.csustan.edu/manage/harris/B2B%20ECommerce%20September%202000.pdf

B2B
Business-to-Business marketing and ecommerce
updated 2005 Dec 19th
(Nabeela noted that the fastparts.com link is broken cause the company no longer is extant)

This page used in the following courses taught by Prof. Richardson . MGT D06 CCT 322

. INTRODUCTION Beginning in November through December 1999 and into January and February 2000 there were a lot of newspaper and magazine reports, offline and online about B2B being the new focus of e-business and how this area would grow very fast. We can find many newspaper articles about B2B issues and many of them include projections as to how big the market will grow - which may not be meaningful since since whether it is $5 trillion or $7 trillion - it's still a lot of money In the following space, you will find separate articles on B2B at three separate times from E-commerce Times. Each story has a different perspective on B2B. Why? WTGR . By Mary Hillebrand E-Commerce Times January 27, 2000 "Forecasters Fuel Feeding Frenzy on B2B Projections" Mary Hillebrand wrote an article in E-Commerce Times in January 2000 www.ecommercetimes.com/news/articles2000/000127-5.shtml in which she noted several of these B2B projections and also commented on how important it would be in the business commuity in general.

"The Stamford, Connecticut-based GartnerGroup sees the online B2B market reaching seven percent of a predicted $105 trillion in total global sales transactions.... The study reports that companies who develop B2B marketplaces -- so-called "e-market makers" -- will be a key driving force for B2B e-commerce." . By Staff Writers E-Commerce Times February 23, 2000 Interestingly, following on the heels of Hillebrand's story in January, is a story in February 2000 which says "Study: U.S. Manufacturers Not B2B E-Commerce Ready" - this story http://www.ecommercetimes.com/news/articles2000/000223-6.shtml is based on a report by a U.S. trade association called National Association of Manufacturers WTGR "A nationwide poll of U.S. industrial firms shows that most are not engaging in extensive businessto-business (B2B) e-commerce, according to the National Association of Manufacturers (NAM). .. The study echoed a recent report from Deloitte and Touche showing that 70 percent of U.S. retailers lack a cohesive e-commerce strategy." "No one questions the importance of B2B e-commerce, yet relatively few manufacturers are participating in it," said NAM president Jerry Jasinowski. Jasinowski added "our survey shows that most manufacturing companies are still at a rather basic level when it comes to integrating the Web into their corporate business activities. While 80 percent claim they have a Web site, the vast majority offer only an information storefront." .. By Mick Brady E-Commerce Times March 16, 2000 "More Glitter Than Gold in B2B Portals" http://www.ecommercetimes.com/news/articles2000/000316-1.shtml Brady writes "companies in nearly every industry are launching slick new Internet portals -- but many have failed thus far to rise above the functionality of plain old Web sites ... As the list of new portals continues to lengthen, it is nevertheless becoming increasingly clear that a portal launch does not necessarily augur immediate B2B success. Customers are not flocking to the portals as quickly as expected and even those who make the trip are often unwilling or unable to make transactions."

.
By Chet Dembeck E-Commerce Times Columnist April 11, 2000 "B2B Ventures Losing Their Allure"

http://www.ecommercetimes.com/news/viewpoint2000/view-000411-1.shtml Dembeck writes in a more "sober" way about the B2B hype, noting "when a leading Web incubator announced earlier this week [11Apr2000] that it would stop investing in business-to-business (B2B) companies, it reinforced concern that the dot-com shakeout in the business-to-consumer arena may be spreading to the realm of B2B." "What seems like a sudden about face was actually expected by some industry analysts. In general, valuation and the projected size of the B2B market have gotten so big they have become hard to fathom...," Geoffrey Bock, an analyst with Boston, Massachusetts-based Patricia Seybold Group told the E-Commerce Times. "...the proliferation of B2B marketplaces is being fueled by the desire to improve business processes, it is also being driven by hype" George Reilly, research director for GartnerGroup, as quoted by Dembeck

.
By Beth Cox August 17, 2001 "Market for B2B Apps Still Soft" www.internetnews.com/ec-news/article/0,,4_867951,00.html An indication of how B2B is progressing is information on the computer software applications that are used by companies in B2B circumstances. Cox writes, "Sales of B2B software, the applications needed to establish online marketplaces, bolster supply chains and allow for collaboration among companies, continue to be soft, and Goldman, Sachs analysts are lowering estimates for some of the prime players in the field." . By Erika Morphy September 24, 2001

"Easy Payments Crucial for B2B Success" www.ecommercetimes.com/perl/story/13696.html#story-start "... with many B2B payments: Oftentimes, a buyer has to tie up its line of credit before the goods are even shipped just to provide the seller with the assurance that the bill will be paid. Other payment mechanisms, such as credit insurance or letters of credit, can be very costly -- and still, a buyer's credit line is usually hamstrung for the duration of the transaction." "An easy payment process is the foundation of any customer-friendly operation." "In the B2B community, however, payment is still largely paper-based despite -- or perhaps because of -- the large amounts of cash exchanged." .

By Keith Regan October 01, 2001

"B2B E-Commerce Takes a Global View, Cautiously" www.ecommercetimes.com/perl/story/?id=13761 "Smart companies are using the Internet to shorten the time it takes to get materials from suppliers, to communicate with third-party manufacturers and, in some ways, to turn business culture on its head, Deloitte & Touche e-commerce consultant Aran Nathanson told the E-Commerce Times." "But for many businesses, the motivation to overcome those hurdles is greater than the obstacles posed. Analysts have predicted that the fastest growing markets in coming years will be the overseas markets. For example, Gartner has estimated that B2B sales in the Asia-Pacific region will rise from US$9 billion in 1999 to $992 billion by 2004." Where is B2B "Even though the overseas markets are expected to boom, U.S. companies thus far still dominate the online B2B landscape, as they do in the business-to-consumer (B2C) e-commerce realm. An Andersen survey of the B2B landscape last year [2000] found that U.S. companies generated 67 % of global B2B e-commerce revenue, with Europe accounting for 14 %." ... KEY So, what we can conclude from these 2000-2001 B2B articles ? POINTS B2B seems to be getting a lot of hype and the expectation among IT oriented people is that it should grow rapidly as a business forum In this fast paced e-world, best thing to do when an issue surfaces, is wait three or four months to see if it has "sustaining" power before jumping on the bandwagon The reality among medium sized businesses is that they may believe B2B is great - but they are still slow in implementing it. The B2B market is effected by many of the environmental forces challenging business in general WTGR . By Lesley Hensell October 2003

"The True Path of B2B E-Commerce" www.ecommercetimes.com/story/32000.html Hensell explains "When it comes to buying and selling products, companies seem to have turned away from each other -- and the bigger the companies are, the less they want to talk. This decline in personal interaction during the sales process may be due partly to the rise of business-to-business, or B2B , exchanges. These automated online marketplaces have moved past early stumbles and now can help companies reach new levels of accuracy, efficiency and profitability. In fact, many large corporations have begun requiring their trading partners to conduct sales ordering, payment and fulfillment online or not at all. However, although conducting B2B transactions online has

become standard operating procedure, the way these exchanges are designed and run is anything but standardized." Hensell further explains that there is a wide variety of platforms and software within which companies conduct B2B and therefore there is little standardization. Hensell suggests B2B exchanges have grown and improved since the early 2000's, but that "...B2B exchanges are not entirely problem-free. While the front-end trading portion of such marketplaces has been refined over time, in many cases the back-end processes -- ranging from handling purchase orders and credit references to billing and shipping -- have not lived up to their potential." ..

During our discussions of B2B aspects we refer to an article written by Mohanbir Sawhney and Steven Kaplanw, titled " Let's Get Vertical . This article appeared in Business 2.0 in 1999.

. Sawhney and Kaplanw explain that "The great untold story of online commerce is that business-to-business sales have already eclipsed the higher-profile business-toconsumer market by a long shot. Annual B-to-B ecommerce is projected to soar from $43 billion in 1998 to $1 trillion by 2003, according to Forrester Research, while the consumer market swells from $7.8 billion to $108 billion in the same period." business-to-consumer B2B Business 1998 $7.8 billion to 2003 $108 billion Business 2005 . business-to-business $43 billion $1 trillion *** $10 trillion **

So, if the B2B market is growing so fast, we need to know what are some of the successful characteristics business models so that we can "conduct E-commerce successfully" in a B2B situation. ** - from page 217 in Turban Text - 2nd ed. ***- Turban Text - 2nd ed. says B2B will grow to the range of $ 1.1 - $ 4 trillion . Business-to-Business Electronic Commerce How is B2B conducted? B2B commerce can be conducted directly between a buyer and seller or via an online intermediary. The intermediary can be . a person or an organization or an electronic system

Business-to-Business Electronic Commerce Types of Transactions Spot Buying o buying goods and services at market prices o often facilitated by a third party exchange Strategic Sourcing o long-term contracts that are usually negotiated to get a good cost advantage o often this is done by streamlining your supply chain

. Business-to-Business Electronic Commerce The key entities in B2B EC, Selling Company Buying Company Electronic Intermediary Deliverer Network Platform Protocols and communication Back-end information system - including ERP - Enterprise Resource Planning

. Business-to-Business Electronic Commerce The Information Processed in B2B - meaning what you have to expect will be sent back and forth between the buyer, seller and intermediary product details customer profile supplier conditions product process - capacities transportation, times, costs

Business-to-Business Electronic Commerce B2B Models

Company Centric Models o which would include Supplier Oriented Marketplace Buyer Oriented Marketplace Intermediary Oriented Marketplace Many-to-many Marketplaces o also known as Trading Communities or Trading Exchanges or Exchanges

.. Supplier Oriented Marketplace

common examples are manufacturers of electronic products example companies are Cisco IBM Intel

which all have a majority of their product sold to other businesses, even though they may have some %age sold direct to consumers Cisco Connection Online

Customer Service Software downloads defect tracking technical advice Online Ordering Cisco builds most of its products for custom orders Custom orders can be facilitated more precisely through online menus Finding Order Status empowers the customer to know when order is arriving and specific details Buyer Oriented Marketplace Buy-Side: One-From-Many This is usually for large companies that buy a large volume, and wide variety of products, so they open up a web site to inform companies what they require, and invite businesses to submit bids on what they wish to supply. A lot of this is being done in the form of an Extranet. One of the new terms used in this consideration is "Procurement Management" - which is a fancy way of "figuring out best how to buy stuff" example companies are General Electric Federal government agencies Automotive assemblers and Tier 1 parts companies

GE Trading Process Network (TPN) GE TPN Post is an Internet-based trading network that enables buyers and sellers to do business-tobusiness electronic commerce, including transactions. In this process, sellers offer products for sale, and accept bids against the product. Intermediary Oriented Marketplace

Boeing's PART case demonstrates the intermediary oriented B2B marketplace. Boeing plays the role of intermediary in supplying maintenance parts to airlines (most of which own Boeing planes)

Currently the Boeing PART Page and myboeingfleet.com are administered separately. Access to the PART Page requires a separate account and login password. www.boeing.com/commercial/aviationservices/guesttour/html/partpage.htm "Boeing views the Internet as an opportunity to encourage more of its customers to order parts electronically"

CASE STUDY of a B2B e-commerce business model: FastParts.com (In Dec 2005 student Nabeela noted that the domain name for fastparts.com appeared to be inactive and all the other links do not work. A Google search reveals little, their founding President left the company in 2001.) FastParts.com: FastParts.com was founded in 1991 to bring buyers and sellers of semiconductors and other electronic components together directly and anonymously to negotiate 'trade' transactions. The company brought its trading expertise onto the Internet upon receiving venture capital funding in 1996. OEMs, contract assemblers, part makers, and distributors can trade components quickly and cost effectively at www.fastparts.com. They offered exchange brokerage between buyers and sellers, and an auction service. They also sell memory and some equipment of an authorized distributor/reseller of certain manufacturers. In 2005 their URL was no longer active. In FastParts words www.fastparts.com "FastParts.com is a leading business-to-business e-commerce net marketplace for the Electronics manufacturing industry. We facilitate the global trading of electronic inventory over the Internet with our ComponentConnectTM and EquipmentConnectTM trading exchanges, SOLD! AuctionTM and Century Catalog services. Membership assures participants they are dealing with pre-qualified trading partners." from formerly www.fastparts.com/about/about_us.html "It was founded in 1991 as an electronic bulletin board-based trading exchange, to serve the needs of procurement professionals who faced the dual challenges of excess inventories on cancelled jobs and inventory shortages for unforecasted orders." "became an e-commerce pioneer in 1996 launched the first B2B Internet marketplace for buyers and sellers of electronic inventory" "Business-to-business (B2B) EC is the engine behind the EC revolution. The genesis of B2B EC was technologies such as Electronic Data Interchange (EDI) and Electronic Fund Transfer, which were typically the exclusive domain of larger organizations. However, with the advent of the Internet and its open network, small and medium size companies are now also able to start participating in B2B EC." formerly from http://www.fastparts.com/about/b2b.html "Key benefits of B2B EC [according to FastParts.com] include: Strengthen and globalize your corporate brand Increase customer satisfaction and loyalty

Create flexible, dynamic business models Enhance cost structure and profit margins Create a virtual networked enterprise that transcends the time and geographic boundaries imposed by the globe Build highly coordinated communities with business partners and customers"

Just how diverse can the B2B market be? It does not have to be limited to conventional manufacturing and service industries. Many other aspects of business can be involved, such as the "business of" sports and entertainment. WTGR journalist Patricia Zyska at Plesman wrote a story in the August 2000 issue of the eBusiness Journal http://www.plesman.com/Archives/eb/2000/Aug/0208/eb020804b.html "NHL looks at online B2B" Zyska noted that accounting firm PricewaterhouseCoopers has been hired by the NHL to do a study on "the feasibility of implementing a B2B initiative for the National Hockey League". Craig Harnett, chief financial officer of the NHL was quoted by Zyska as saying that "We have a lot of vendor relationships, a lot of suppliers at the team levels, as well as league level, that run anything from pencils and paper clips to Jumbotrons and zambonis," "Many of the individual teams buy their own products and services on an individual basis rather than in any aggregated form, and this is going to bring them all together," said Patrick McDonnell, management consulting services partner with PricewaterhouseCoopers. NOTE: a Google search in May 2005 could not find any hits for NHL and B2B that were dated in 2003, 2004 or 2005 so it appears as if the NHL dropped this. A check on the NHL site did not reveal any B2B activity - however, it should be noted thatthe NHL was closed down in 2004/2005 due to the strike by the Players !

.
On this page there are several quotes from ecommercetimes.com. Permission was given by Richard Kern, Associate Publisher of the ECommerce Times, in an email to Prof. Richardson 2004 Dec 10th, a hard copy of the email is kep on file in Richardson's permissions binder.

CONTACT I MAIN PAGE I NEWS GALLERY I E-BIZ SHORTCUTS I INT'L BIZ SHORTCUTS I MKTG&BUSINESS SHORTCUTS

I TE

witiger.com

. MISTAKES ITEXTS USED I IMAGES I RANK IDISCLAIMER I STUDENT CONTRIBUTORS I FORMER STUDENTS

. . http://www.witiger.com/ecommerce/B2B.htm Prof. W. Tim G. Richardson www.witiger.com

definition A lead generator is any marketing-related activity intended to publicize the availability of a vendor's product or service. Lead generators may be as simple as printed advertising in a newspaper or trade journal, or as formidable as an industry exhibit. Internet technology is also broadly employed to acquire leads from Web site visitors that seek to access helpful information, articles, or downloads. For example, a popular Web site may advertise an interesting report, but require the visitor to register with their contact information before accessing the promised content. The resulting lead is then passed back to the advertiser for sales follow up.

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MANAGING THE DIGITAL ENTERPRISE MICHAEL RAPPA

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BUSINESS MODELS ON THE WEB

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Business models are perhaps the most

discussed and least understood aspect of the web. There is so much talk about how the web changes traditional business models. But there is little clear-cut evidence of exactly what this means.

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Audio | Transcript

Things to watch: Charlie Rose series of executive interviews: __/ 11-19-2007 \__ Amazon: Jeff Bezos __/ 07-19-2007 \__ Craigslist: Craig Newmark __/ 05-22-2007 \__ Wikipedia: Jimmy Wales __/ 12-29-2006 \__ A panel discussion on the future of the Internet and Web 3.0 __/ 09-20-2006 \__ Yahoo: Terry Semel

In the most basic sense, a business model is the method of doing business by which a company can sustain itself -- that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain. Some models are quite simple. A company produces a good or service and sells it to customers. If all goes well, the revenues from sales exceed the cost of operation and the company realizes a profit. Other models can be more intricately woven. Broadcasting is a good example. Radio and later television programming has been broadcasted over the airwaves free to anyone with a receiver for much of the past century. The broadcaster is part of a complex network of distributors, content creators, advertisers (and their agencies), and listeners or viewers. Who makes money and how much is not always clear at the outset. The bottom line depends on many competing factors. Internet commerce will give rise to new kinds of business models. That much is certain. But the web is also likely to reinvent tried-and-true models. Auctions are a perfect example. One of the oldest forms of brokering, auctions have been widely used throughout the world to set

Things to read: Important Note Learning Objectives __/ 09-30-2005 \__ What Is Web 2.0: Design Patterns and Business Models for the Next Generation of Software Tim O'Reilly __/ 05-06-2005 \__ Do Some Business Models Perform Better than Others? A Study of the 1000 Largest US Firms Peter Weill __/ 01-14-2004 \__ The Utility Business Model and the Future of

__/ 04-13-2006 \__ Google: Eric Schmidt __/ 12-27-2005 \__ Netflix: Reed Hastings __/ 03-01-2005 \__ Yahoo: Jerry Yang __/ 07-26-2001 \__ Google: Sergey Brin and Larry Page __/ 03-07-2001 \__ eBay: Meg Whitman __/ 09-02-1999 \__ Dell: Michael Dell __/ 11-05-1998 \__ AOL: Steve Case __/ 10-30-1996 \__ Apple: Steve Jobs

prices for such items as agricultural commodities, financial instruments, and unique items like fine art and antiquities. The Web has popularized the auction model and broadened its applicability to a wide array of goods and services. Business models have been defined and categorized in many different ways. This is one attempt to present a comprehensive and cogent taxonomy of business models observable on the web. The proposed taxonomy is not meant to be exhaustive or definitive. Internet business models continue to evolve. New and interesting variations can be expected in the future. The basic categories of business models discussed in the table below include:

Brokerage Advertising Infomediary Merchant Manufacturer (Direct) Affiliate Community Subscription Utility

Computing Services Michael Rappa __/ 07-04-2005 \__ The Abundance of Simple Business Models on the World Wide Web Michael Featherstone Allan Ellis __/ 05-27-2002 \__ The Role of the Business Model in Capturing Value from Innovation Henry Chesbrough Richard S. Rosenbloom __/ 11-00-2001 \__ Migrating to Profitable Electronic Commerce Business Models Jeanne W. Ross Michael R. Vitale Peter Weill

On the airwaves: __/ 12-22-2007 \__ Google Captures the 'Zeitgeist' of 2007 __/ 11-20-2007 \__ Ed Burns Makes First Straight-to-iTunes Movie __/ 11-19-2007 \__ Netflix's Million-Dollar Quest for Good Movie Tips Scott Horsley __/ 11-19-2007 \__ Amazon Rolls Out New Wireless Reading Device __/ 09-25-2007 \__ Amazon to Enter Music Download Business Laura Sydell __/ 08-22-2007 \__ Internet Threatens Local Newspapers Geoffrey Bennett __/ 07-19-2007 \__ Drop in eBay Items Concerns Investors Wendy Kaufman

__/ 01-27-2007 \__ The Impact of Web 2.0 and Emerging Social Network Models World Economic Forum __/ 09-27-2006 \__ Web-scale Computing Services at Amazon.com Jeff Bezos __/ 05-17-2006 \__ Users, Not Money: the Google Business Model Marissa Mayer __/ 01-27-2006 \__ Digital 2.0: Powering a Creative Economy World Economic Forum __/ 06-05-2004 \__ Strategy for High Tech Companies Michael Cusumano __/ 09-26-2002 \__ A Conversation with Michael Dell __/ 05-01-2002 \__ How Does Google Actually Make Money? Larry Page

The models are implemented in a variety of ways, as described below with examples. Moreover, a firm may combine several different models as part of its overall Internet business strategy. For example, it is not uncommon for content driven businesses to blend advertising with a subscription model. Business models have taken on greater importance recently as a form of intellectual property that can be protected with a patent. Indeed, business models (or more broadly speaking, "business methods") have fallen increasingly within the realm of patent law. A number of business method patents relevant to e-commerce have been granted. But what is new and novel as a business model is not always clear. Some of the more noteworthy patents may be challenged in the courts.
Type of Model: Description:

Brokerage Model

Brokers are market-makers: they bring buyers and sellers together and facilitate transactions. Brokers play a frequent role in businessto-business (B2B), business-to-consumer (B2C), or consumer-toconsumer (C2C) markets. Usually a broker charges a fee or commission for each transaction it enables. The formula for fees can vary. Brokerage models include: Marketplace Exchange -- offers a full range of services covering

Case studies: Amazon.com America Online ChemConnect Classmates Coolsavings Counterpane Craigslist Dell Computer DoubleClick eBay Flickr Google iTunes Lands' End Listen.com LiveWire Monster.com Netflix New York Times Orbitz Overture PayPal Priceline Red Hat Slashdot Truste Wikipedia Yahoo!

the transaction process, from market assessment to negotiation and fulfillment. Exchanges operate independently or are backed by an industry consortium. [Orbitz, ChemConnect] Buy/Sell Fulfillment -- takes customer orders to buy or sell a product or service, including terms like price and delivery. [CarsDirect, Respond.com] Demand Collection System -- the patented "name-your-price" model pioneered by Priceline.com. Prospective buyer makes a final (binding) bid for a specified good or service, and the broker arranges fulfillment. [Priceline.com] Auction Broker -- conducts auctions for sellers (individuals or merchants). Broker charges the seller a listing fee and commission scaled with the value of the transaction. Auctions vary widely in terms of the offering and bidding rules. [eBay] Transaction Broker -- provides a third-party payment mechanism for buyers and sellers to settle a transaction. [PayPal, Escrow.com] Distributor -- is a catalog operation that connects a large number of product manufacturers with volume and retail buyers. Broker facilitates business transactions between franchised distributors and their trading partners. Search Agent -- a software agent or "robot" used to search-out the price and availability for a good or service specified by the buyer, or to locate hard to find information. Virtual Marketplace -- or virtual mall, a hosting service for online merchants that charges setup, monthly listing, and/or transaction fees. May also provide automated transaction and relationship marketing services. [zShops and Merchant Services at Amazon.com] return to top Advertising Model The web advertising model is an extension of the traditional media broadcast model. The broadcaster, in this case, a web site, provides content (usually, but not necessarily, for free) and services (like email, IM, blogs) mixed with advertising messages in the form of banner ads. The banner ads may be the major or sole source of revenue for the broadcaster. The broadcaster may be a content creator or a distributor of content created elsewhere. The advertising model works best when the volume of viewer traffic is large or highly specialized. Portal -- usually a search engine that may include varied content or services. A high volume of user traffic makes advertising profitable and permits further diversification of site services. A personalized portal allows customization of the interface and content to the user. A niche portal cultivates a well-defined user demographic. [Yahoo!] Classifieds -- list items for sale or wanted for purchase. Listing fees are common, but there also may be a membership fee. [Monster.com, Craigslist] User Registration -- content-based sites that are free to access but require users to register and provide demographic data. Registration allows inter-session tracking of user surfing habits and thereby generates data of potential value in targeted advertising campaigns.

__/ 03-27-2007 \__ Blockbuster Targets Netflix with 'Total Access' Greg Allen __/ 02-07-2007 \__ Steve Jobs Wades into Digital Music Debate __/ 02-01-2007 \__ Michael Dell's Return Alex Chadwick __/ 01-02-2007 \__ Wikinomics: How Mass Collaboration Changes Everything Don Tapscott

Data sources: Online Classifieds Data Pew Internet Usage Metrics Nielsen // NetRatings Top 500 Sites Alexa Web Search

Hungry minds: The Long Tail Chris Anderson iTunes: How Copyright, Contract, and Technology Shape the Business of Digital Media William W. Fisher, et al. An e-Business Model Ontology for Modeling e-Business Alexander Osterwalder Yves Pigneur The Truth about Internet Business Models Jeffrey F. Rayport B2B E-Commerce Hubs Steven Kaplan Mohanbir Sawhney Business Models for Electronic Markets

Next topic:

Digital Markets

Paul Timmers A Taxonomy of Internet Commerce Paul Bambury

[NYTimes] Query-based Paid Placement -- sells favorable link positioning (i.e., sponsored links) or advertising keyed to particular search terms in a user query, such as Overture's trademark "pay-for-performance" model. [Google, Overture] Contextual Advertising / Behavioral Marketing -- freeware developers who bundle adware with their product. For example, a browser extension that automates authentication and form fill-ins, also delivers advertising links or pop-ups as the user surfs the web. Contextual advertisers can sell targeted advertising based on an individual user's surfing activity. Content-Targeted Advertising -- pioneered by Google, it extends the precision of search advertising to the rest of the web. Google identifies the meaning of a web page and then automatically delivers relevant ads when a user visits that page. [Google] Intromercials -- animated full-screen ads placed at the entry of a site before a user reaches the intended content. [CBS MarketWatch] Ultramercials -- interactive online ads that require the user to respond intermittently in order to wade through the message before reaching the intended content. [Salon in cooperation with MercedesBenz] return to top Infomediary Model Data about consumers and their consumption habits are valuable, especially when that information is carefully analyzed and used to target marketing campaigns. Independently collected data about producers and their products are useful to consumers when considering a purchase. Some firms function as infomediaries (information intermediaries) assisting buyers and/or sellers understand a given market. Advertising Networks -- feed banner ads to a network of member sites, thereby enabling advertisers to deploy large marketing campaigns. Ad networks collect data about web users that can be used to analyze marketing effectiveness. [DoubleClick] Audience Measurement Services -- online audience market research agencies. [Nielsen//Netratings] Incentive Marketing -- customer loyalty program that provides incentives to customers such as redeemable points or coupons for making purchases from associated retailers. Data collected about users is sold for targeted advertising. [Coolsavings] Metamediary -- facilitates transactions between buyer and sellers by providing comprehensive information and ancillary services, without being involved in the actual exchange of goods or services between the parties. [Edmunds] return to top Merchant Model Wholesalers and retailers of goods and services. Sales may be made based on list prices or through auction. Virtual Merchant --or e-tailer, is a retail merchant that operates

Previous topic:

Web Analytics

solely over the web. [Amazon.com] Catalog Merchant -- mail-order business with a web-based catalog. Combines mail, telephone and online ordering. [Lands' End] Click and Mortar -- traditional brick-and-mortar retail establishment with web storefront. [Barnes & Noble] Bit Vendor -- a merchant that deals strictly in digital products and services and, in its purest form, conducts both sales and distribution over the web. [Apple iTunes Music Store] return to top Manufacturer (Direct) Model The manufacturer or "direct model", it is predicated on the power of the web to allow a manufacturer (i.e., a company that creates a product or service) to reach buyers directly and thereby compress the distribution channel. The manufacturer model can be based on efficiency, improved customer service, and a better understanding of customer preferences. [Dell Computer] Purchase -- the sale of a product in which the right of ownership is transferred to the buyer. Lease -- in exchange for a rental fee, the buyer receives the right to use the product under a terms of use agreement. The product is returned to the seller upon expiration or default of the lease agreement. One type of agreement may include a right of purchase upon expiration of the lease. License -- the sale of a product that involves only the transfer of usage rights to the buyer, in accordance with a terms of use agreement. Ownership rights remain with the manufacturer (e.g., with software licensing). Brand Integrated Content -- in contrast to the sponsored-content approach (i.e., the advertising model), brand-integrated content is created by the manufacturer itself for the sole basis of product placement. return to top Affiliate Model In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, the affiliate model, provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. The affiliates provide purchase-point clickthrough to the merchant. It is a pay-for-performance model -- if an affiliate does not generate sales, it represents no cost to the merchant. The affiliate model is inherently well-suited to the web, which explains its popularity. Variations include, banner exchange, pay-per-click, and revenue sharing programs. [Barnes & Noble, Amazon.com] Banner Exchange -- trades banner placement among a network of affiliated sites. Pay-per-click -- site that pays affiliates for a user click-through. Revenue Sharing -- offers a percent-of-sale commission based on a user click-through in which the user subsequently purchases a

product. return to top Community Model The viability of the community model is based on user loyalty. Users have a high investment in both time and emotion. Revenue can be based on the sale of ancillary products and services or voluntary contributions; or revenue may be tied to contextual advertising and subscriptions for premium services. The Internet is inherently suited to community business models and today this is one of the more fertile areas of development, as seen in rise of social networking. Open Source -- software developed collaboratively by a global community of programmers who share code openly. Instead of licensing code for a fee, open source relies on revenue generated from related services like systems integration, product support, tutorials and user documentation. [Red Hat] Open Content -- openly accessible content developed collaboratively by a global community of contributors who work voluntarily. [Wikipedia] Public Broadcasting -- user-supported model used by not-for-profit radio and television broadcasting extended to the web. A community of users support the site through voluntary donations. [The Classical Station (WCPE.org)] Social Networking Services -- sites that provide individuals with the ability to connect to other individuals along a defined common interest (professional, hobby, romance). Social networking services can provide opportunities for contextual advertising and subscriptions for premium services. [Flickr, Friendster, Orkut] return to top Subscription Model Users are charged a periodic -- daily, monthly or annual -- fee to subscribe to a service. It is not uncommon for sites to combine free content with "premium" (i.e., subscriber- or member-only) content. Subscription fees are incurred irrespective of actual usage rates. Subscription and advertising models are frequently combined. Content Services -- provide text, audio, or video content to users who subscribe for a fee to gain access to the service. [Listen.com, Netflix] Person-to-Person Networking Services -- are conduits for the distribution of user-submitted information, such as individuals searching for former schoolmates. [Classmates] Trust Services -- come in the form of membership associations that abide by an explicit code of conduct, and in which members pay a subscription fee. [Truste] Internet Services Providers -- offer network connectivity and related services on a monthly subscription. [America Online] return to top Utility Model The utility or "on-demand" model is based on metering usage, or a "pay as you go" approach. Unlike subscriber services, metered services are based on actual usage rates. Traditionally, metering has

been used for essential services (e.g., electricity water, long-distance telephone services). Internet service providers (ISPs) in some parts of the world operate as utilities, charging customers for connection minutes, as opposed to the subscriber model common in the U.S. Metered Usage -- measures and bills users based on actual usage of a service. Metered Subscriptions -- allows subscribers to purchase access to content in metered portions (e.g., numbers of pages viewed). [Slashdot] return to top About the author: Michael Rappa is director of the Institute for Advanced Analytics at North Carolina State University.

2010 Michael Rappa

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